Chrysler Suspends Pension Plan - Analyst Blog

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Chrysler Group LLC, majority-owned by Italy's Fiat SpA ( FIATY ), decided to freeze its U.S. pension plans for nearly 8,000 U.S. salaried employees at the end of the year. The freeze will be applied to employees joined before Dec 31, 2004.

Chrysler stated that the decision has been taken mainly to comply with U.S. tax regulations. All the affected employees will be shifted to a defined contribution plan from the traditional pension plan, which guarantee a specific payment to retirees. The company's pension plans were underfunded by $8.9 billion at the end of last year.

However, Chrysler revealed that the employees will get all the benefits accrued through Dec 31 this year. It will also allow them to access the entire amount of their benefits earlier at 58 years of age instead of 62.

Chrysler is not an exception as far as the termination of pension plan is concerned. Last year, General Motors Company ( GM ) also suspended traditional pension benefits for 19,000 salaried workers hired before 2001.

A few days back, Chrysler hit the headlines when it refused to recall about 2.7 million units of its Jeep Grand Cherokee from 1993 through 2004 and Jeep Liberty from 2002 through 2007 model years even when National Highway Traffic Safety Administration (NHTSA) sent a letter asking the company for a voluntarily recall.

Chrysler denied on the ground that the letter is based on "incomplete analysis of the underlying data" and the vehicles are completely safe. The company revealed that it has met all federal safety standards when the vehicles were manufactured; as a result, they are "among the safest vehicles of their era."

NHTSA started investigating on the issue in Aug 2010 at the request of an advocacy group based in Washington, D.C. The agency found that if hit from the rear, Jeeps' fuel tanks can leak fuel and cause fires if there is an ignition source.

In fact, the agency inferred that the older Grand Cherokees and Libertys have fatal crash rates that are about twofold compared with similar vehicles, such as General Motor's Chevrolet S10 Blazer, Ford Motor 's ( F ) Explorer, Toyota Motor 's ( TM ) 4Runner, Isuzu Rodeo, Isuzu Trooper, Mitsubishi Montero, Suzuki Sidekick and Suzuki XL-7.

However, Chrysler concluded that it received low number reports of rear-impact crashes over the last 30 years caused by fire or a fuel leak in the affected Jeeps. Besides, retrofitting the older Jeeps with repositioned tanks would be time consuming and costly.

In the first quarter of 2013, Chrysler's profits tumbled nearly 65% to $166 million from $473 million in the year-ago quarter. The company's results were negatively affected by lower vehicle shipments of key product launches, particularly the 2013 Ram Heavy Duty trucks and the 2014 Jeep Grand Cherokee, as well as due to preparation for the second-quarter production launch of the all-new 2014 Jeep Cherokee.



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This article appears in: Investing , Business , Stocks

Referenced Stocks: F , FIATY , GM , TM

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